Quarterly Results January-December 2011

RNS Number : 0611Y

Telefonica SA

24 February 2012

 



FINANCIAL HIGHLIGHTS

·        In 2011, the Company posted record levels of free cash flow generation of 9,270 million euros, with a strong year-on-year growth of 9.5%, compatible with increased investment amid a difficult operating environment.

·        Telefónica surpassed the 306 million accesses mark at the end of 2011, setting the basis for the Company's future revenue growth:

o   The commercial repositioning in the second half led to a significant increase in activity in the last months of the year and to a 7% year-on-year growth in accesses.

o   Telefónica Latinoamérica, with a 10% year-on-year organic growth in accesses, consolidated its position as the main contributor to the expansion of Telefónica's accesses.

o   Mobile net additions reached a record of 7.8 million accesses in the quarter, while mobile broadband accesses increased 1.6 times versus 2010 to 38 million. The contract segment already represents a third of the Group's total mobile accesses.

·        Consolidated revenue totalled 62,837 million euros in 2011, with a year-on-year growth of 3.5%, and of 4.8% excluding the impact of mobile termination rates cuts:

o   Telefónica Latinoamérica was once again the Company's growth driver, accounting for 47% of total revenues.

o   Mobile data revenue grew 19.0% in organic terms year-on-year, accounting for more than 31% of mobile service revenue. This increase was driven by the rapid expansion of non-SMS data revenues, which now account for over 52% of total data revenues.

·        The Company kept a high profitability, with an underlying OIBDA margin of 36.1% despite the increased commercial activity:

o   Underlying OIBDA totalled 22,697 million euros.

o   Telefónica Latinoamérica continued to increase its contribution to the Group's underlying OIBDA, accounting for 48% of the consolidated figure in 2011 (+4 percentage points versus 2010).

o   The negative impact from regulation dragged 188 million euros to 2011 OIBDA.

·        The Company met its 2011 revenues, OIBDA margin and CapEx targets.

·                             

·        Telefónica announces its guidance for 2012 and reiterates the shareholder remuneration policy announced in December.

o   Financial Guidance:

ü Net financial debt / OIBDA < 2.35x (equivalent to previous (Net Debt+Commitments) / OIBDA < 2.5x).

ü Shareholder remuneration of 1.50 euros per share, including the payment of a cash dividend of 1.30 euros per share and a share buyback for the remaining amount.

o   Operating Guidance (considering constant perimeter):

ü Revenue growth >1% at current exchange rates.

ü Lower OIBDA margin decline than in 2011.

ü Similar CapEx/sales as in 2011.

2012 operating guidance criteria: Assumes current exchange rates (2012 average FX of € 1: US$ 1.32x; € 1: BRL 2.30; € 1: £ 0.85) and constant perimeter of consolidation. At the OIBDA level, excludes write-offs, capital gains/losses from companies disposals and significant exceptionals. CapEx excludes spectrum licenses.

2011 Bases for 2012 targets:

•        Net financial debt / OIBDA: 2.46 x.

•        Revenues: 62,837 million euros.

•        OIBDA margin: 36.1%.

•        CapEx/Sales ex spectrum: 14.2%.

Comments from César Alierta, Executive Chairman:

"2011 has been a key year in the process of transformation of Telefónica. In a difficult environment, our diversification and our flexibility has allowed us to deliver solid results, in line with the targets announced, and a record FCF generation. Revenues increased by 3.5% year-on-year, to 62,837 million euros and FCF totalled 9,270 million euros, a 9.5% increase versus 2010, and equivalent to 2.06 euros per share.

All this has been compatible with investments exceeding the 10.2 billion euros mark in 2011, underpinning the importance of having a differential, top-quality network, to offer increasingly sophisticated services compatible with all kind of fixed and mobile devices, essential for the generation of future revenues.

In parallel, we have made significant progress in other areas. On the one hand, we have increased our customer base to exceed the 306 million mark, while the Company's strategy to strengthen its competitive position is already paying off, showing a significant increase in the commercial activity in the second half of the year, and a remarkable growth in mobile broadband. In 2011, Telefónica has led the increase of penetration of mobile broadband services in its markets, with more than 38 million customers at the end of the year, 61% above 2010 figure. As a result, mobile data revenue also grew significantly to almost 20% in organic terms, and now represents 31% of mobile service revenues.

 Furthermore, we have continued to make advancements in the diversification of our business, reinforcing greatly our position in Latin America, while our business in the region already accounts for over 45% of revenue, OIBDA and operating cash flow of Telefónica. The commercial effort done in the last months is already positively impacting revenue evolution with growth rate showing a significant acceleration in the fourth quarter to 6.3% year-on-year in organic terms and excluding the impact from lower mobile termination rates. We have strengthened our leadership in the key market of the region, Brazil, which has become our major growth engine and yields tremendous potential for the future.

In Europe, despite a tough economic backdrop, Telefónica has continued to push the adoption of new broadband services as key drivers for revenue growth, in a context of pressure in traditional voice services due to strong competition with adverse regulation. Moreover, the changes in the commercial offer in our main markets have led to a stronger commercial activity, quite evident in the fourth quarter. On the other hand, the Company's efforts to enhance efficiency have been translated into specific projects that have already started to bear fruits in the case of Spain, bringing significant savings in personnel expenses in 2012. In addition, in Spain, and despite the adverse trading conditions, Telefónica has invested close to 3 billion euros in 2011, representing a 17% over sales and underpinning the strong push in the deployment of high speed broadband networks as well as the acquisition of the best spectrum in the market. On the other hand, the strong results obtained in Germany must be highlighted. We have reinforced significantly our position in this market and have become the operator with the highest growth rate in 2011.

We face 2012 from a position of strength, thanks to the advances we have made in the last decade to reinforce our diversification, not only geographical but also by businesses, and also because of the  decisions we have taken in the last months to accelerate our transformation and increase financial flexibility. For all this, we face 2012 with a lot of confidence.

We will continue pushing the mass-market adoption of broadband in our markets, both fixed and mobile, with Telefónica becoming the key lever for the development of the societies where we are present. Additionally, we have reinforced our position in the value chain with the launch of Telefónica Digital, in order to accelerate the capture of new revenues in the digital world. As a result, in 2012 we expect revenue growth of more than 1% at current exchange rates.

The creation of Telefónica Global Resources has also been fundamental to take us another step forward towards more efficiency and maximise all the benefits coming from our scale while freeing up resources in a year in which we will maintain a strong investment effort to advance in our transformation process and to improve our network capabilities.

And, as the progress in the first two months of the year shows, we are focused on strengthening our balance sheet and reducing our leverage. During the year we will proactively manage our portfolio of assets to optimize the use of capital and to maximize the Company's value.

All of the above topped by a very attractive and sustainable shareholder remuneration policy. The dividends and share buybacks announced for 2012 yield 11.5% as of today's stock prices".

TELEFÓNICA
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
	January -December			% Chg
	2011	2010		Reported	Organic	2011 Guidance	Guidance fulfillment
Revenues	62,837	60,737		3.5	0.1	"up to 2%"	0.1
Telefónica España	17,284	18,711		(7.6)	(7.6)
Telefónica Latinoamérica	29,237	25,756		13.5	5.0
Telefónica Europe	15,524	15,724		(1.3)	(1.6)
OIBDA	20,210	25,777		(21.6)	(5.1)
Telefónica España	5,072	8,520		(40.5)	(12.0)
Telefónica Latinoamérica	10,941	13,713		(20.2)	(1.4)
Telefónica Europe	4,233	4,080		3.8	(2.5)
OIBDA margin	32.2%	42.4%		(10.3 p.p.)	(2.0 p.p.)	"upper 30's"	36.1%
Telefónica España	29.3%	45.5%		(16.2 p.p.)	(2.2 p.p.)	Limited
Telefónica Latinoamérica	37.4%	53.2%		(15.8 p.p.)	(2.4 p.p.)	erosion	(-2.0 p.p.)
Telefónica Europe	27.3%	25.9%		1.3 p.p.	(0.3 p.p.)	y-o-y
Operating Income (OI)	10,064	16,474		(38.9)	(9.6)
Telefónica España	2,984	6,511		(54.2)	(16.8)
Telefónica Latinoamérica	6,157	9,759		(36.9)	(4.3)
Telefónica Europe	1,116	879		27.0	(0.9)
Net income	5,403	10,167		(46.9)
Basic earnings per share (euros)	1.20	2.25		(46.7)
CapEx	10,224	10,844		(5.7)	3.3	~9,000	8,819
Telefónica España	2,914	2,021		44.2	2.6
Telefónica Latinoamérica	5,299	5,455		(2.9)	6.6
Telefónica Europe	1,705	3,152		(45.9)	(3.8)
OpCF (OIBDA-CapEx)	9,986	14,933		(33.1)	(9.8)
Telefónica España	2,158	6,499		(66.8)	(16.5)
Telefónica Latinoamérica	5,641	8,258		(31.7)	(6.9)
Telefónica Europe	2,528	928		n.m.	(1.5)
- Reconciliation included in the excel spreadsheets.
Notes:
-OIBDA and OI are presented before brand fees and management fees.
-OIBDA margin calculated as OIBDA over revenues.
- 2010 and 2011 reported figures include the hyperinflationary adjustments in Venezuela in both years.
-  OIBDA, OIBDA margin, OI and OpCF of Telefónica include 2,671 million from the workforce provision related to the Redundancy Program in Spain in the third quarter of 2011.
- Figures in million Euros. CapEx includes, in the second quarter of 2011, 417 from the the spectrum acquired in Brasil (349) and Costa Rica (68); 37 from the spectrum acquired in Colombia in the fourth quarter of 2011 and 842 from the acquisition of spectrum in Spain in 2011. 2010 CapEx includes 1,379 from the acquisition of spectrum in Germany in the second quarter of 2010 and 1,237 from the acquisition of spectrum in Mexico in the third quarter of 2010.
- T.España: Figures in million euros. OIBDA, OIBDA margin, OI and OpCF of T. España include a net gain of 40 from the sale of non-strategic assets in the fourth quarter of 2011 (73 in 2011) and the booking during the third quarter of 2011 of the workforce provision related to the redundancy programme (2,591) and 202 in the fourth quarter of 2010. In 2010, Company results in reported terms were affected by the following: booking of the Universal Service (95 in revenues and 31 in OIBDA; 38 in revenues and 13 in OIBDA in the fourth quarter), sale of application rights (101 in revenues and also in OIBDA; 49 in the fourth quarter) and bad debts recovery (20 in OIBDA). Associated to the Universal Service, it was booked in 2011, 35 in revenues and 13 in OIBDA in the fourth quarter.
- T. LatAm: 2011 T. Latinoamérica results include from the second quarter of the year and retroactively from January 1st, 2011, the full consolidation of TVA, company that was already part of Telefónica's perimeter since the fourth quarter of 2007.  OIBDA, OIBDA margin, OI and OpCF in T. Latinoamérica  are affected by the positive impact from the revaluation of the previously-held stake in Vivo at its fair value at the date of the acquisition of the 50% in Brasilcel owned by Portugal Telecom (3,797 million euros in the third quarter of 2010) and by non-recurrent restructuring expenses mainly related to personnel reorganization and firm commitments relating to the Telefónica Foundation's social activities of 410 in the fourth quarter of 2010.
-  T.Europe: Figures in million euros. OIBDA, OIBDA margin, OI and OpCF of T. Europe include a capital gain of 61 from the sale of Manx Telecom in the second quarter of 2010 and is affected by non-recurrent restructuring expenses mainly related to personnel reorganization in the second half of the year (202 recorded in the third quarter and 118 in the fourth quarter).
- Organic criteria:  In financial terms, it assumes constant average exchange rates as of January-December 2010, and excludes changes in the perimeter of consolidation and hyperinflation accounting in Venezuela. Therefore, in January-December 2010 the consolidation of Vivo, HanseNet and Tuenti are included whereas the revaluation of our pre-existing stake in VIVO accounted for in Q3 10 and the results of Manx Telecom are excluded from organic growth calculation. In addition, excluded from OIBDA and OI in 2010 is the impact of the capital gain from the sale of Manx Telecom booked in the second quarter of 2010, and the one-off restructuring expenses, most of which were associated with workforce adjustment plans and firm commitments relating to the Telefónica Foundation's social activities, registered in the second half of 2010.  In OIBDA terms, in January-December 2011 the positive impact from the partial reduction of our economic exposure to Portugal Telecom is excluded, as well the workforce provision related to the Redundancy Program approved in Spain. Results from the Costa Rica operation are excluded from the organic growth calculation. Telefónica's CapEx excludes the Real Estate Efficiency Programme at T. España, the real estate commitments associated with Telefónica's new headquarters in Barcelona and investments in spectrum. 2011 financial results include from the second quarter of the year and retroactively from January 1st, 2011, the full consolidation of TVA, company that was already part of Telefónica's perimeter since the fourth quarter of 2007. In addition, 2011 results include from September (retroactive effect August 1st) the global consolidation of Acens Technologies.
- Guidance criteria: 2011 guidance assumes constant exchange rates as of 2010 (average FX in 2010) and excludes hyperinflationary accounting in Venezuela in both years. At the OIBDA level it excludes write-offs (impairments of subsidiaries), capital gains/losses from companies disposals and significant exceptionals mainly related with restructuring costs. Results from the operation in Costa Rica are excluded from guidance calculation. Group CapEx excludes Real Estate Efficiency Program of T. España, the Real State commitments associated to the new Telefónica premises in Barcelona and spectrum licenses.

DISCLAIMER

This document contains statements that constitute forward looking statements about Telefónica Group (going forward, "the Company" or Telefónica) including financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations which may refer, among others, to the intent, belief or current prospects of the customer base, estimates regarding, among others, future growth in the different business lines and the global business, market share, financial results and other aspects of the activity and situation relating to the Company.

The forward-looking statements in this document can be identified, in some instances, by the use of words such as "expects", "anticipates", "intends", "believes", and similar language or the negative thereof or by forward-looking nature of discussions of strategy, plans or intentions. Such forward-looking statements, by their nature, are not guarantees of future performance and involve risks and uncertainties, and other important factors that could cause actual developments or results to differ from those expressed in our forward looking statements. These risks and uncertainties include those discussed or identified in fuller disclosure documents filed by Telefónica with the relevant Securities Markets Regulators, and in particular, with the Spanish Market Regulator.

Analysts and investors, and any other person or entity that may need to take decisions, or prepare or release opinions about the securities issued by the Company, are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.

Except as required by applicable law, Telefónica undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telefónica's business or acquisition strategy or to reflect the occurrence of unanticipated events.

This document may contain summarized information or information that has not been audited. In this sense, this information is subject to, and must be read in conjunction with, all other publicly available information, including if it is necessary, any fuller disclosure document published by Telefónica.

Finally, it is stated that neither this presentation nor any of the information contained herein constitutes an offer of purchase, sale or exchange, nor a request for an offer of purchase, sale or exchange of securities, or any advice or recommendation with respect to such securities.

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